Management Consulting Case Study-Chilled Beverage

Case Prompt

You are providing consultation to a division manager within a prominent consumer products company. Her division specializes in producing fruit juices in three different forms, all marketed under the same brand name: chilled (typically found in the supermarket's milk section), juice boxes, and frozen concentrate. The division reports annual sales of $600 million, while the entire company's sales exceed $20 billion. The chilled juice segment, specifically, represents $120 million in annual sales. Although the juice boxes and frozen concentrate segments are profitable, the chilled juices are either breaking even during good quarters or incurring losses during bad quarters.

The manager has received a proposal from upper management suggesting the sale of the chilled juices business. She is seeking your advice on how to proceed.

Additional Information:

• The chilled beverages industry is valued at $5 billion nationwide, with two major players holding 40% and 25% of the market share, respectively. Your client's division has a 12% market share, placing it third in the industry.

• The two leading market players are profitable and have the resources to invest in advertising, promotions, trade activities, and couponing more extensively than your client's division.

• While the market leaders produce pure orange juice and citrus-based blends, your client's products involve complex juice blends, primarily pear or peach juice (comprising 95% of inputs) and additional flavorings like cranberries, bananas, mangoes, etc. These flavorings cost roughly twice as much as orange juice.

• The target market for chilled juices consists mainly of mothers with school-age children, a price-sensitive demographic that appreciates coupons and promotions.

• Brand reputation is crucial in this market, similar to juice boxes and frozen concentrate, as mothers seek reliable products for their children. However, brand premiums must align with those of other branded products, leading to a similar price range among all branded juices.

• All three product types (chilled, juice boxes, and frozen concentrate) are produced in a single California plant, making significant plant conversion challenging.

Areas of Discussion:

During the case, consider discussing the following areas:

• The pros and cons of selling the chilled juice business.
• The potential consequences of selling the entire juice business.
• Strategies to rework the ingredients and costs of the chilled juice business based on competitor success.

Solution:

There are three main choices:

1. Sell the chilled juice business, which may impact the juice boxes and frozen concentrate segments due to advertising and manufacturing synergies.
2. Sell the entire juice business, potentially capturing synergies for the buyer but not guaranteeing a turnaround. The selling price might be low.
3. Retain the chilled juice business and reevaluate ingredients and costs, as demonstrated by competitors' success.